Increase In Minimum Wage - Free Essay Example

Increase in minimum wage, decreases the demand of labor in the market because increase in wage pushes people to work but there are very few people who work in minimum wage. The company will start hiring very less people and make the work done by the machine or automation to keep the labor expenses constant or balanced. The wage is increased means more people would want to work at higher rate so, there will be increase in supply of labor, leading to the surplus of labor in the market. On the other hand, increasing in minimum wage may also cause increment in labor demand when there is no unemployment. In this case there are not larger number of people looking for job but increase in wage might make people to cut their working hours as they would make same amount of money within less hours. For workers who are at near minimum wages, the prices of products they produce will rise as the level of minimum wages increase. This is so because wages are considered input costs and input costs determine the overall cost of production of a product. As the cost of production rises, the firm, to continue to make profits, will have to raise the prices of products. With an increase in prices, there will be a downward shift in the demand curve as demand is negatively related to price. In the long run, the effect on the increase in minimum wages will have a lower impact on consumer purchasing power than it does in the short run. The impact of higher prices will lead to a slight fall in demand in the long run. With the increase in minimum wages, employers are forced to pay higher wages for the same set of skills and workers. From an employers point of view, they are paying higher wages for no extra work/skill. This lack of additional human capital will force employers to invest in automation technologies to replace workers with machines. This will lead to a potential disaster as the unemployment levels would increase drastically resulting in excessive supply of labor. In labor-intensive industries, such as restaurants, the employers will be forced to hire lesser number of workers. This would also lead to an increase in unemployment levels. Also, the firms will be forced to increase the cost of products to offset the increase in minimum wages. In order to counter this situation, it would make more sense that employers offer incentives to workers who are ready to increase their human capital. This will benefit both the employer and the worker. From the above, it is clear that as minimum wages rise, employers are forced to find alternate solutions to balance the increased costs and this leads to unemployment and underemployment. The increased levels of unemployment and underemployment increase the government spending on unemployment benefits, food, and, medical assistance. There is unemployment means, less tax collection which ultimately affects the GDP of the nation. To counter unemployment, the government needs to come up with policies to increase the rate of employment and that in return increases the government expenditure. Thus, unemployment causes a negative effect on government spending. Looking at all those negative effects due to increase in minimum wages, I believe that the minimum wages should not be increased or decreased now. It creates unemployment, increase in price of goods, and increases the government expenditure for the welfare of unemployed people. There should be a minimum standard of wages that are paid in order for an individual to meet their basic requirements and it is also necessary for an individual so that employers cannot take an unnecssary advantage of workers. Government need to come up with a plan where employees are paid over and above the minimum level based on the human capital contributions that each worker has to offer. Employers as well as employee should be motivated to contribute form their side to the nation. This will surely make a positive change and we will run towards the great achievement.